2020 (6) TMI 691 - AT - Insolvency and Bankruptcy

Tribunal Requires Shareholder Approval for Asset Sale, Appellant's Rights Upheld

The Tribunal emphasized the requirement of shareholder approval for the sale of significant company assets and upheld the appellant's right to seek relief ... Prevention of oppression and mismanagement - right of a member to apply to the Tribunal under Sections 241 and 242 - restriction on powers of Board to sell or dispose of the whole or substantially the whole of the undertaking and requirement of shareholders' special resolution under Section 180 - remand for fresh consideration by the Tribunal after giving parties proper opportunityRight of a member to apply to the Tribunal under Sections 241 and 242 - prevention of oppression and mismanagement - remand for fresh consideration by the Tribunal after giving parties proper opportunity - Whether the Appellant, as a member, was entitled to prosecute a petition under the Companies Act alleging oppression and mismanagement and whether the matter required fresh consideration by the NCLT after affording proper opportunity to the parties. - HELD THAT: - The Tribunal held that a member who is adversely affected or who shows that the interests of the company are prejudicially affected is entitled to file a petition under the Companies Act for prevention of oppression and mismanagement, and that the NCLT/NCLAT are the specialised fora to examine such allegations. The NCLAT noted that the NCLT had refused the Appellant leave to file a rejoinder after new material (the Board resolution) emerged and that the NCLT had relied upon other fora's orders; given the statutory scheme and the need to scrutinise the genuineness of documents and the conduct complained of, the matter ought to be reconsidered after giving the parties proper opportunity to place material before the Tribunal. Accordingly the matter was remanded to the NCLT, Chennai Bench for fresh consideration uninfluenced by earlier orders and after affording appropriate opportunities to the parties. [Paras 11, 12]The Appellant is entitled to pursue remedies under Sections 241-242; the matter is remanded to the NCLT, Chennai Bench to decide afresh after giving parties proper opportunity to be heard.Restriction on powers of Board to sell or dispose of the whole or substantially the whole of the undertaking and requirement of shareholders' special resolution under Section 180 - Whether the sale of substantially the whole of the company's undertaking required prior shareholder approval by special resolution under Section 180 and whether that principle bears on the Tribunal's inquiry. - HELD THAT: - The Tribunal extracted and applied the legal principle that the Board may exercise the power to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking only with the consent of the company by a special resolution. The explanation defining 'undertaking' and 'substantially the whole' was noted, and the Tribunal recorded that, because the Companies Act places such restriction on the Board, the question of shareholder approval for a transaction alleged to dispose of substantially the entire assets is a matter which the NCLT should examine when adjudicating complaints of oppression and mismanagement. [Paras 11]The requirement of shareholder approval by special resolution under Section 180 is a relevant legal principle which the NCLT must consider while adjudicating the petition concerning alleged sale of substantially the whole of the company's undertaking.Final Conclusion: The appeal succeeds to the extent of directing that the matter be remitted to the NCLT, Chennai Bench for fresh consideration and decision after affording the parties proper opportunity to place material and be heard; no order as to costs. Issues Involved:1. Allegations of illegal sale of company assets.2. Claims of oppression and mismanagement under Sections 241-242 of the Companies Act, 2013.3. Validity of Board Resolution dated 4-9-2014 and Power of Attorney.4. Requirement of shareholder approval for sale of substantial company assets.5. Overlapping legal proceedings and imposition of costs.Issue-Wise Detailed Analysis:1. Allegations of Illegal Sale of Company Assets:The appellant alleged that the entire assets of the Respondent No. 1 Company were illegally sold by Respondent No. 3, who misused a power of attorney granted unilaterally by Respondent No. 2 without notice to Respondent No. 1. This sale was based on a fabricated Board Resolution dated 4-9-2014. The appellant sought to set aside the impugned order dated 24-7-2019 in CP/281/2019 passed by NCLT, Chennai Bench.2. Claims of Oppression and Mismanagement:The appellant filed a petition under Sections 241-242 of the Companies Act, 2013, seeking action against acts of 'Oppression and Mismanagement' by the only other shareholder and Director of the Respondent No. 1 Company, who is her husband, Respondent No. 2. They are living separately, and the appellant claimed that the NCLT, Chennai Bench, relied on previous orders from the Madurai Bench of the Hon'ble Madras High Court and imposed costs of Rs. 5 Lakhs on her.3. Validity of Board Resolution and Power of Attorney:The appellant argued that the Board Resolution dated 4-9-2014, the power of attorney executed, and the illegal sale deed executed by Respondent No. 3 were ultra vires the Memorandum of Association of the Company and against the company’s objectives. Additionally, the appellant was not given an opportunity to file a rejoinder.4. Requirement of Shareholder Approval:The appellant submitted that selling substantially the whole of the undertaking requires shareholder approval in accordance with the Companies Act, 2013. The sale of the company's assets, which included approximately 16.64 acres of land, required a special resolution as per Section 180 of the Companies Act, 2013. The Tribunal noted that the approval of shareholders through an Extra-Ordinary General Meeting was necessary for such a sale.5. Overlapping Legal Proceedings and Imposition of Costs:The appellant contended that the two causes of action (NCLT proceedings and the civil suit filed by Respondent No. 2) overlap significantly, which should not deprive her of the right to move the NCLT. The respondent argued that the relief sought before the NCLT and the Additional District Judge were similar and requested dismissal of the case. The Tribunal observed that the appellant is entitled to exercise her remedy under the Companies Act, 2013, and the imposition of costs needed review. The Tribunal remanded the matter back to the NCLT, Chennai Bench, for appropriate consideration, ensuring proper opportunities for the parties to present their case.Conclusion:The Tribunal highlighted the necessity for shareholder approval for the sale of substantial company assets and the appellant's right to seek relief under Sections 241-242 of the Companies Act, 2013. The matter was remanded to the NCLT, Chennai Bench, for fresh consideration, ensuring that the appellant is given a proper opportunity to present her case without being influenced by previous orders. No order as to costs was made.